In Seeking Taxes, New York Challenges India and Mongolia in U.S. Supreme Court

WASHINGTON, April 24 — New York imposes property taxes on the portion of foreign countries’ United Nations missions that are used not for diplomacy but as housing for staff members. The State Department has instructed foreign countries to pay those taxes. The question for the Supreme Court on Tuesday was what happens when they refuse.

No straightforward answer emerged during the argument. But the justices appeared at least open to permitting New York’s case against India and Mongolia to proceed in federal court, even though the city’s top lawyer conceded that because of diplomatic immunity, New York will not be able to force these governments or any others, ultimately, to pay a dime. The city says the two countries owe about $25 million in back taxes and interest.

But a victory would give the city the high ground in encouraging about 190 United Nations missions to live up to their obligations to their host city. A legal judgment that the taxes were properly imposed and due would also invoke a provision of the Foreign Operations Appropriations Act, which penalizes countries with unpaid tax obligations by withholding 110 percent of the amount due from their foreign aid.

“I believe we are going to get a lot out of that,” Michael A. Cardozo, New York City’s corporation counsel, told the justices. That provision operates only if there is a legal judgment, so it helps the city only if the Supreme Court rules that the federal courts have jurisdiction to hear New York’s claim, and if the city prevails.

New York has obtained tax liens against the 26-story building on East 43rd Street owned by India’s United Nations mission, 20 floors of which are used for housing staff members, and Mongolia’s six-story building on East 77th Street, where three floors are used for staff housing.

The legal question is whether a 1976 federal law that governs suits against foreign governments permits the federal courts to give New York what it wants: a declaration that the taxes are due.

If this were an ordinary case of unpaid taxes, the city would be able to enforce the liens by foreclosing on the buildings. That cannot be done in this case, Mr. Cardozo conceded. “But if we can proceed to judgment and get that declaration,” he continued, the governments will pay, the city believes.

The statute, the Foreign Sovereign Immunities Act, generally withholds jurisdiction from the federal courts to hear suits against foreign governments. But the law contains several exceptions. New York is invoking the “immovable property” exception, which provides jurisdiction over cases in which “rights in immovable property situated in the United States are in issue.”

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The question is whether a tax lien is such a “right.” New York argues that it is. The Indian and Mongolian governments, supported by the federal government, argue that the exception is more limited and that it applies only to disputes over the ownership of a piece of property, not over unpaid taxes.

“All this case is about is money,” John J. P. Howley, representing the foreign governments, told the justices, adding, “It’s not about ‘rights in property.’ ”

It was the federal government’s position that appeared to intrigue the justices, and not in a way that favored the government. The last time the issue was litigated was in 1985, in a case that arose from an attempt by Englewood, N.J., to impose its property tax on a house that the head of Libya’s United Nations mission used as a “weekend retreat” for his family.

At that time, the federal government argued that the courts had jurisdiction to hear Englewood’s case, a position that the United States Court of Appeals for the Third Circuit eventually rejected in ruling for Libya.

“I thought that the department submitted a good brief on this issue, but in 1985,” Chief Justice John G. Roberts Jr. said to Sri Srinivasan, the assistant to the solicitor general who was arguing for the government. “Are those arguments no longer valid?”

Mr. Srinivasan said the government had “reviewed our position in that case, and we have come to the conclusion that it was incorrect.”

Aside from the jurisdictional question presented by this case, Permanent Mission of India v. City of New York, No. 06-134, the State Department’s view on the underlying issue is that United Nations missions are obliged to pay their local taxes.

Embassies in Washington, by contrast, are exempt from taxes on all their property, including the portion used for housing, as long as the foreign government extends reciprocal treatment to diplomatic property owned by the United States in the foreign country.

A version of this article appears in print on , on Page B3 of the New York edition with the headline: In Seeking Taxes, New York Challenges India and Mongolia in U.S. Supreme Court. Order Reprints|Today's Paper|Subscribe